Metallica nears startup at Cerro San Pedro

In Mexico, Metallica Resources (MR-T) has awarded a US$105-million mining contract at its Cerro San Pedro project, which is expected to pour its first gold by the end of 2004.

The proposed heap-leach operation is projected to produce 90,500 oz. gold and 2.1 million oz. silver annually over a lifespan of eight years. Operating costs are pegged at US$160 per oz. gold; total costs, at US$215 per oz.

The projected capital cost is US$28.2 million, including US$7 million for prestripping and mobilization of the contract fleet. The remaining US$98 million in contract-mining expenses accounts for 46% of the life-of-mine operating cost.

Cerro San Pedro has a net present value of US$36 million, based on a discount rate of 5%, a gold price of US$350 per oz., and a silver price of US$5 per oz. The internal rate of return is 23.6%.

Proven and probable reserves stand at 61.1 million tonnes grading 0.59 gram gold and 24 grams silver per tonne, equivalent to 1.2 million oz. gold and 47.1 million oz. silver. This estimate is based on a gold price of US$325 per oz. and a silver price of US$4.62 per oz.

Mineralization is hosted by Cretaceous-aged limestones intruded by a north-striking, west-dipping porphyry dyke. Much of the deposit is oxidzied, and recovery rates of 63% for gold and 35% for silver are expected.

Contract miners will extract 9 million tonnes of waste and 7.5 million tonnes of ore annually, putting the life-of-mine stripping ratio at 1.2-to-1.

Metallica owns all of Cerro San Pedro, having acquired Glamis Gold‘s (GLG-T) half-stake in early 2003. Metallica paid US$2 million when the deal was concluded and must pay an additional US$16 million in cash or free-trading shares.

As part of the deal, Glamis is entitled to a net return royalty on all production. The royalty varies from 0.5% to 2%, rising at US$25 increments in a range of gold prices starting at US$350-375 per oz.

In late 2003, Metallica raised $85 million by issing 38.7 million units priced at $2.20 apiece. A unit consists of a share and half a warrant, with a full warrant entitling the holder to buy another share at $3.10 over five years.

Proceeds will be used at Cerro San Pedro and to pay debt.

Metallica also owns the El Morro copper-gold porphyry deposit in Chile. The deposit hosts an inferred resource of 465 million tonnes grading 0.61% copper and 0.5 gram gold, based on a cutoff grade of 0.4% copper.

Noranda (NRD-T) can earn a 70% interest in El Morro by spending US$10 million on development and paying US$10 million in cash by September 2005.

The deal also requires the major to table a bankable feasibility study within two years of covering the expenditure and payment commitments.

Metallica has just under 82 million shares outstanding, and prior to the recent financing, it had US$3.8 million in cash.